Accounting
World readies for Trump tariffs even before his White House return
Donald Trump’s inauguration promises to usher in an era of upheaval in global commerce, forcing governments around the world to scramble in preparation for a tariff onslaught even before he’s back in the White House.
Soon after
The threat to China is longstanding, meaning its leaders have had ample time to
Mexico and Canada have borne much of the brunt of Trump’s trade threats since election day, prompting leaders from both American neighbors to publicly warn of
“Trump 2.0 trade policy seems to be much more radical compared to 1.0,” says Yeo Han-koo , senior fellow at the Peterson Institute for International Economics and former South Korean trade minister. “It’s like a prisoner’s dilemma — the best scenario for all these countries is to band together and then resist, but there’s a motivation for each country to race to get a better deal compared to your competitors.”
If implemented, Trump’s threats to increase levies on Chinese goods to 60% and to 20% for the rest of the world would transform the structure of global trade flows away from the U.S., according to Bloomberg Economics. Retaliation would exacerbate the shock.
Behind the scenes
In Mexico, President Claudia Sheinbaum
Law enforcement kicked off a country-wide “cleaning operation” with a
Mexico is set to scale up such efforts, carrying out searches for goods that entered the country without proper taxation. To that end, Mexico slapped 19% tariffs on goods imported through courier companies, a move that analysts said targets major e-retailers Temu and Shein.
“If we coordinate on this, there won’t be any tariffs,” Sheinbaum said about working with the US in late November.
In Canada, outgoing Prime Minister Justin Trudeau flew to
How the country approaches Trump has been thrown in limbo with Trudeau’s resignation. Behind the scenes, officials are examining
When Trump enacted levies on $200 billion in imports from China in 2018-2019, Vietnam was one of the biggest beneficiaries as exports to the U.S. more than doubled. Up to 16% of the increase in 2021 alone was a result of rerouting of goods to avoid U.S. tariffs on China, according to a Harvard Business School
Now, Vietnam — which has the fourth-biggest trade surplus with the U.S. after China, Mexico and Canada — appears to be in Trump’s sights. His trade advisor Peter Navarro called out the country by name in
Vietnam’s leaders in recent months have made efforts to balance the relationship between China and the US. The country’s deputy minister of foreign affairs has
Similarly,
Balancing act
Increased dependency on the U.S. as a source of demand makes economies such as Vietnam more exposed should Trump decide to apply a universal tariff on all imports, by undercutting the business case to build new factories. Apart from China, economies such as South Korea, Taiwan, Malaysia and Thailand would be more exposed considering their high trade orientation, economists at Morgan Stanley led by Chetan Ahya wrote in a November note.
South Korea was forced to revise down its growth outlook, partly as a result of the growing geopolitical tensions contributing to weaker demand for the country’s exports. A top national security adviser to Japanese Prime Minister Shigeru Ishiba said the country should
Then there’s the blow from second-round consequences.
“If Trump’s tariffs lead to China’s exports redirecting to the rest of Asia — and they’re very competitive — it’s very difficult for countries to compete,” said Sonal Varma, chief economist for India and Asia-ex Japan at Nomura Singapore Ltd. “That is something a lot of governments are thinking about.”
Among those economies that are increasingly worried about unfair competition from China is the EU, which faces twin concerns of an influx of cheap Chinese goods — particularly electric vehicles — and a new wave of tariffs from the U.S. Officials there have already prepared a list of American goods it could target with tariffs in the event Trump follows through with his threats.
Since Trump’s first term, EU member states have agreed to a new set of trade powers that will allow the bloc to strike back at third countries that use economic restrictions for political retribution. The EU’s new anti-coercion instrument strengthens trade defenses and enables the commission to impose tariffs or other punitive measures in response to such politically motivated restrictions.
Officials in Brazil appear less concerned about any U.S. tariffs, believing the nation can ramp up sales to other markets including Asian countries in the case it’s targeted. Indian officials are also allaying apprehensions for now, betting Prime Minister Narendra Modi’s good relations with Trump during his first presidency will continue and they have room to lower import duties for U.S. goods as part of any forthcoming negotiations.
“Economies are just stuck between a rock and a hard place in many ways,” said Frederic Neumann, chief Asia economist at HSBC Holdings Plc in Hong Kong. “It’s a very, very difficult course to navigate to appease both US demands to decouple from China, but at the same time to remain economically engaged with China.”
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Following the Republican victory in the 2024 election and the reelection of President Donald Trump, tax reform and political changes are at the forefront of every accountant’s agenda.
The inauguration of Trump signals a dramatic shift in the tax landscape, with significant reforms expected to impact businesses and individuals. Accountants must remain vigilant, understanding how proposed changes may affect their clients and their own advisory strategies.
Tax considerations for construction project timing
Accountants must carefully evaluate how potential tax reforms under Trump’s presidency could affect the timing of taxpayer construction projects. Trump has expressed potential intent to cut Inflation Reduction Act spending and to roll back President Biden’s climate and energy policies. Changes to IRA credits, particularly those tied to renewable energy and infrastructure investments, may alter their availability or size, prompting the need for accelerated project completion to maximize benefits before credits phase out.
Potential tax change: For qualified assets, 100% accelerated bonus depreciation may return. Currently, the ability to claim a full depreciation deduction is being phased down and will be eliminated for most properties placed in service starting in 2027.
Adjustments to the bonus depreciation rates could provide further incentives to change the timing of construction projects, allowing taxpayers to take advantage of expanded accelerated depreciation for such projects in the future. Additionally, accountants should help clients weigh the trade-off between immediate cash tax savings from deductions, such as accelerated depreciation, and the long-term value of tax credits.
Accountants and taxpayers should weigh the potential for changes to existing credits and future depreciation rates and model these scenarios when considering the timing of substantial construction projects.
Considerations for business entity selection and pending tax reform
Proposed changes, including a reduced corporate tax rate, raise critical questions about entity selection and tax structure.
Potential tax change: Trump has proposed decreasing the corporate tax rate from 21% to 20%, and potentially to as low as 15% for companies that manufacture in the U.S.
The possibility of a flat 15% corporate tax rate has significant implications. Accountants should evaluate the tax impact of potential changes to the corporate tax rate when reviewing current pass-through entity tax structures and consider the total effective tax rate and other compliance issues. For example, lower corporate federal rates may offset the complexity of state taxes with varying pass-through entity tax regimes. Additionally, pass-through owner capital gains rates — including the net investment tax, potential limitations on deductions such as pass-through owner health insurance expenses, and payroll taxes, among other tax considerations — may necessitate a closer look at current tax entity selections.
The tax rate implications above also must factor in Section 199A, which offers a 20% deduction for qualified business income. Personal rate adjustments could affect the overall value of the deduction. Clients engaged in specified service trade or business activities generally are excluded above certain income thresholds. Those businesses that are not included in the SSTB category still must satisfy certain W-2 wage and or basis in property metrics to claim the deduction.
Tax reform hurdles: Political and policy challenges
The path to tax reform is full of obstacles that could shape the timing and substance of the legislation. A single comprehensive bill may face greater political resistance but offers holistic reform, while dividing reform into smaller bills could address priorities piecemeal but delay broader implementation.
Potential tax change: Trump indicated that he would reverse a provision of his 2017 tax cut package that limited Americans’ ability to deduct state and local taxes on their federal returns.
Negotiations around the state and local tax deduction are an example of policy differences that could shape both the legislation but also the timing. Beyond the political debate, reconciliation rules limit provisions to those directly affecting the federal budget as well as other limitations. Certain items on the tax reform agenda could be limited by the budget reconciliation process. Lastly, shifts in Congressional Budget Office scoring methods may impact tax reform dynamics.
Tax planning for a decreasing rate environment
A reduction in corporate tax rates offers planning opportunities and challenges. Accountants should model scenarios to recommend strategies to defer income or accelerate expenses to take advantage of rate reductions. Timing differences, such as accelerated deductions or deferred income recognition, can create permanent tax savings in changing rate environments.
Accountants must consider the impact of these adjustments on financial statements. Accountants should prepare for the revaluation of deferred tax assets and liabilities under new tax rates and communicate potential impacts on earnings and disclosures to stakeholders. Additionally, timing considerations will be at the forefront as the enactment date of potential future legislation will need to be considered for financial statement purposes.
Opportunities for accountants
The shifting tax landscape following the presidency of Trump presents numerous opportunities and challenges for tax professionals. By adopting a proactive, advisory-focused approach, accountants can add significant value to their clients. By not only understanding the intricacies of new tax laws but also providing strategic tax planning that aligns with clients’ financial goals.
German prosecutors are preparing to bring the first criminal charges against staff who worked at Macquarie Group Ltd. over the Cum-Ex tax scandal, in a signal that officials are ramping up their years-long probe.
Prosecutors based in Cologne plan to initially charge a few of the bankers who were working at the lender before 2012 when the trading occurred, according to people familiar with the matter. Macquarie has previously said that as many as 100 people were swept up in the probe.
A spokesman for Cologne prosecutors confirmed that they’re planning to issue new indictments but declined to disclose the names or banks involved. Macquarie declined to comment.
Cum-Ex was a controversial trading strategy designed to obtain duplicate refunds by taking advantage of how dividend taxes were collected. Germany stopped the practice in 2012 and is now probing about 1,800 suspects from across the global financial industry. More than 20 people have been convicted in German courts for their part in Cum-Ex.
Investment bankers at Macquarie’s London office were
The number of suspects in the German
Under German law, companies can’t be charged with crimes but prosecutors can use a related form of proceeding to add them as parties to criminal cases. That is how investigators targeted VW, when the automaker settled with prosecutors over the diesel scandal for €1 billion in 2018.
British hedge fund trader Sanjay Shah was sentenced to 12 years in prison by Danish judges in December for orchestrating the same scam in Denmark, the heaviest jail term
Charges against Macquarie bankers have been expected for years but Cologne prosecutors repeatedly delayed decisions. The pandemic slowed law enforcement on multiple fronts, including reduced court capacity.
However, the Cologne prosecutors office, which is investigating suspects in 130 different probes, has also struggled with its own work management. This week Tim Engel, the new head of Cum-Ex prosecution, told reporters this broad approach is taking a toll on investigators who have to wade through enormous amounts of seized documents.
After more than a decade of investigations, Cologne prosecutors are now also facing the prospect of running out of time to prosecute, at least in some of their cases. But only very few proceedings against individual suspects will have to be dropped completely, Engel said.
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